Analysts have been pricing Dominos for ‘perfection’ and its seems anything less won’t do.
Photo: Luis Ascui

by
Ben Hurley

The outstanding growth story of Domino’s Pizza, presided over by formerBRW Executive Rich-lister Don Meij, may have cultivated overly high expectations from its investors. There is no other way to explain its share price fall on the back of a 15.7 per cent interim net profit increase.

While Domino’s reported strong numbers this week, the decline in same-store sales growth across its global network to 1.5 per cent – down from 8.4 per cent in the first half of the 2012 financial year – appears to have spooked investors. Shares in Domino’s dropped 6 per cent on the news, then recovered slightly to $9.95.

It is an expectation that is not lost on Meij. “We like that and we aim to please," Meij says. “Because of the numbers we have been compounding, our like-for-like [sales] were softer than the past few years, maybe that’s been enough for shareholders to adjust their perception."

Meij became a Domino’s Pizza franchisee in 1996 and built up a network of 17 stores before folding them into Domino’s in 2001 and becoming chief executive soon after. Domino’s listed in 2005. Meij says the company has the ability to expand from its current 940 stores to 2000 over the territories it now operates.

And he says pizza is absolutely not a passing fad of a generation that grew up with the Ninja Turtles. Online sales make up 50 per cent of Australian sales, and he expects that to become 80 per cent within three years. “We’re the most sophisticated digital food retailer in Australia," Meij says. “We’re absolutely front and centre with the next generation. Pizza has always been a uni food and that hasn’t changed."

Domino’s continues to innovate, most notably with its new shop front in Surfer’s Paradise, which model will soon be rolled out elsewhere. The funky new stores aim for a “theatre of food" with staff making the pizzas and displaying fast-cutting skill in full view of patrons.

It offers meals as cheap as $4 with its “pizza sliders" product while up-selling on gourmet pizzas with ingredients like duck, blue cheese and pork belly.

City Index chief market analyst Peter Esho says analysts have been “pricing Domino’s for perfection" and this result was not perfect, hence the share price fall. But he says there is still room for growth, particularly by upping prices.

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“They can grow faster over the next few years if they manage to increase their average unit prices, and how you do that is making sure you have the right product but putting the image behind the product," Esho says. “If the store looks nicer, feels nicer and pizzas taste nicer, you can charge more than you did five years ago."